Testing for foreign exchange market efficiency - a trivariate vector autoregressive approach

Chyng-Hua Shen

Applied Financial Economics, 1997, vol. 7, issue 6, 711-719

Abstract: The speculative efficiency of the forward exchange market for the British pound, Canadian dollar, German mark, Japanese yen and Swiss franc is evaluated in this study. The conventional approach of selecting spot and one-forward exchange rates is extended towards spot and two-forward exchange rates to consider the interactions among exchange rates of different contracts of different maturities. The possible cointegration of three series forms an error correction mechanism. Thus Campbell and Shiller's (1987) bivariate vector autoregressive model is extended to a trivariate VAR (TVAR) based on the error correction mechanism. A Wald test (with and without considering heteroscedasticity) is finally performed to examine the validity of the cross-equation restrictions. The speculative efficient market is rejected for the forward exchange market for the five currencies under study.

Date: 1997
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.tandfonline.com/doi/abs/10.1080/758533864 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:apfiec:v:7:y:1997:i:6:p:711-719

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAFE20

DOI: 10.1080/758533864

Access Statistics for this article

Applied Financial Economics is currently edited by Anita Phillips

More articles in Applied Financial Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().